Professional Documents
Culture Documents
INVENTORY
Inventory-A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Inventory Management- A set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be
Raw Material Purchased Items Received But Not Issued to Production & Include Component Parts/ Sub-assemblies etc. Work-In-Process (WIP) - Raw Materials Issued to Production Being Processed/ Waiting for Next stage in Processing Finished Goods End Product of the Production Process Ready for Sale Held at Factory/ Central Warehouse Distribution Inventories Stocked in Various points in the Distribution System Maintenance, Repair & Operational Supplies (MRO) Items that Support the Production Process But Do Not Become Part of Product Hand Tools/ Machine Spares/ Lubricants/ Cleaning Supplies
Work in process Work in process Work in process Finished goods
Customer
Vendors
Raw Materials
Input
Wait to be moved
Move time
Setup time
Run time
Output
Bullwhip effect Demand information is distorted as it moves away from the end-use customer Higher safety stock inventories to are stored to compensate Seasonal or cyclical demand Demand that varies cyclically over time, usually in response to some effect of season or business cycle. Demand for electricity and Christmas ornaments is seasonally cyclical; demand for housing is affected by the effects of the business cycle upon interest rates.
12-5
Independent
Demand for items used by external customers Cars, appliances, computers, and houses are examples of independent demand inventory
12-6
12-7
INVENTORY MANAGEMENT OBJECTIVES Maximizing Customer Service Maximizing the Efficiency of Purchasing and Production Minimizing Inventory Investment Maximizing Profit
INVENTORY COSTS
Ordering Cost: Clerical costs of preparing purchase orders Some spent finding suppliers and expediting orders Transportation costs Receiving costs (E.g. unloading and inspection) Holding Costs : Costs of storage space (E.g. warehouse depreciation) Security Insurance Forgone interest on working capital tied up in inventory Deterioration, theft, spoilage, or obsolescence
Shortage Costs: Temporary or permanent loss of sales when demand cannot be met
Disrupted production when raw materials are unavailable : Idle workers Extra machinery setups Lost sales resulting in dissatisfied customers Loss of quantity discounts on purchases
Effective use of financial resources. Protection against all material losses Proper calculation of cost of production. Keep the ball of production bouncing. Economies in purchasing. Eliminates redundant inventory. Keeping prompt delivery to the customers
ABC
1. ABC Analysis (Always Better Control): Classify the items on the basis of importance and the technique of grouping is called as ABC analysis. To provide maximum overall protection against the stock outs for a given investment in safety stock. This analysis prepared and checked weekly or monthly. Category % of items %of value A (High Cost) 10 70 B (Medium Cost) 20 20 C (Low Cost) 70 10
HML(HIGH,MEDIUM,LOW)
HML analysis is similar to ABC analysis, but only price criterion is used. The items are classified into three groups which are called high , medium ,low. For example management may decide that all items of unit price above Rs 3000 will be of H, those between 300 to 3000 are M , those having unit price below Rs 300 will be L category
GOLF(GOVT,ORDINARY,LOCAL,FOREI GN)
GOLF analysis is based on nature of the supplier which determine quality , delivery , lead time , payment terms , continuity of supply and administration work involved. G group covers procurement from government supplier O group covers procurement from non-government supplier L group from Local supplier F group from foreign supplier
XYZ
XYZ is based on the value of closing stock of inventory Items whose inventory values are high are called X Y as moderate inventory Z as low inventory
SOS(SEASONAL,OFF-SEASONAL)
SOS divides items into two classes Seasonal & Off-seasonal As far as possible procurement must be made during harvesting when the price is low. Off-season purchase could be a costly affair unless the supplier is in position to offer offseason discount eg onFans,regarments,coolers
FSN(FAST,SLOW,NON-MOVING)
Classifies items on the basis of their rate of consumption in the company. High value non-moving items are a liability Low value fast moving items should kept in ample quantities
VED(VITAL,ESSENCIAL,DESIRABLE)
VED analysis represents classification of items based on criticality. Criticality means how a machine is important to production. The analysis classifies the items into three groups called vital , essential & desirable. Vital category encompasses those items which, if not made available, being the production to a halt ,causing heavy losses
Essential group includes items whose stock-out cost is very high because it reduce production. Desirable group comprises items which do not cause noticeable loss of production or their stock-out entails nominal expenditure and causes minor disruptions.
SDE(SCARCE,DIFFICULT,EASY)
SDE classifies items into three groups called scarce ,difficult & easy and focuses on ease of procurement as the criterion. Scarce group includes items of which dearth , are imported or obtained through canalizing agencies of the government. Difficult items includes those items which are available indigenously but are not easy to procure due to exotic raw material being used. Easy category are produced on mass-scale , locally available ,absence of string specifications and are easy to produce.